Agency spreads tighten on possible European stabilization; FHLB expected to add to supply

By Lisa Kerner

Charlotte, N.C., Oct. 11 - Agency spreads tightened by about 1 basis point across the curve, coming off the three-day weekend on Tuesday, according to Michael Skinner, director of callable agency trading for Guggenheim Partners.

Swap spreads were also in, he said.

"We saw some pretty good selling," Skinner said, as well as "some buying we hadn't seen before."

All spread products seemed to take advantage of the relative calmness in the European market resulting from news of bailout talks.

"Everybody seems to feel better today compared to last week," Skinner said.

Another trader said agency spreads were in by about 2 bps on the day overall, with the two- and three-year sectors unchanged on a quiet Tuesday.

There may have been some selling in the short end to make room for possible new supply, he said.

The Federal Home Loan Banks are on the calendar to make a Global Note announcement on Wednesday

According to the trader, FHLB could announce a new two-year or a new three-year note, or possibly reopen a note.

When asked if the agency could take a pass on the opportunity to issue a note, the trader said "there is a possibility."

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